Morgan Stanley Still Cautious On Tesla After Q2 Print

Tesla Inc TSLA stock rallied 9.4 percent Thursday morning following its second-quarter earnings report, but some Wall Street analysts remain cautious.

The Analyst

Morgan Stanley analyst Adam Jonas reiterated an Equal-Weight rating on Tesla with a $291 price target.

The Thesis

A number of key developments in the report seem positive, Jonas said in a note. (See the analyst's track record here.) 

Auto gross margins beat Morgan Stanley’s estimate by 4 percent. Third-quarter unit volume guidance was ahead of expectations. Capex guidance of $2.5 billion was below expectations of $2.8 billion.

Still, Jonas said the Tesla bull story is once again riding on whether investors believe Musk’s targets. Tesla's operating cash burn of $543 million was much worse than the $130 million Jonas expected, and vague guidance commentary left a number of unanswered questions about what investors can expect in the third quarter, the analyst said. 

“For example, the statement that they expect to generate positive cash ‘including operating cash inflows and capital expenditures,as well as the normal inflow of cash received from non-recourse financing activities on leased vehicles and solar products’ leaves a rather large range of outcomes for how free cash is actually created." 

Jonas also questions what measures Tesla is taking to reduce its cash consumption and whether those measures are only temporary.

Price Action

For now, Tesla investors are giving Musk the benefit of the doubt. Even after the big gains, Tesla stock is down 5.2 percent overall in the past six months.

Related Links:

Tesla Reports Mixed Q2, Still Expects To Be Profitable, Cash Flow Positive In 2018

Tesla Earnings: Model 3 Production Target Hit, What's Next?

Photo courtesy of Tesla.